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TMI BlogClarification on availability of input tax credit in respect of demo vehicles.X X X X Extracts X X X X X X X X Extracts X X X X ..... are required to maintain at their sales outlet as per dealership norms and are used for providing trial run and for demonstrating features of the vehicle to the potential buyers. These vehicles are purchased by the authorised dealers from the vehicle manufacturers against tax invoices and are typically reflected as capital assets in books of account of the authorized dealers. As per dealership norms, these vehicles may be required to be held by the authorized dealers as demo vehicle for certain mandatory period and may, thereafter, be sold by the dealer at a written down value and applicable tax is payable at that point of time. 2. Reference has been received to issue clarification regarding availability of input tax credit in respect of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expression when they are used for making the following taxable supplies in clause (a) of section 17(5) of CGST Act , is to exclude certain cases (based on the nature of outward taxable supplies being made using the said motor vehicle) from the restriction on availment of input tax credit in respect of the specified motor vehicles i.e. motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver). The taxable supplies, permitted for the purpose of being excluded from the blockage of input tax credit as per provisions of clause (a) of section 17(5) of CGST Act , being further supply of such motor vehicles, transportation of passengers and imparting training on driving su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e features of the vehicle to potential buyers, it helps the potential buyers to make a decision to purchase a particular kind of motor vehicle. Therefore, as demo vehicles promote sale of similar type of motor vehicles, they can be considered to be used by the dealer for making further supply of such motor vehicles . Accordingly, input tax credit in respect of demo vehicles is not blocked under clause (a) of section 17(5) of CGST Act , as it is excluded from such blockage in terms of sub-clause (A) of the said clause . 4.5 There may be some cases where motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver) are used by an authorized dealer for purposes other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gly, in such cases, input tax credit in respect of such demo vehicle would not be excluded from blockage in terms of sub-clause (A) of clause (a) of section 17(5) of CGST Act and therefore, input tax credit on the same would not be available to the said dealer. 5. Availability of input tax credit on demo vehicles in cases where such vehicles are capitalized in the books of account by the authorized dealers. 5.1 As per provisions of section 16(1) of CGST Act , every registered taxpayer is entitled to take input tax credit charged on any supply of goods and services made to him, where such goods or services are used in the course or furtherance of business of such person, subject to such conditions and restrictions as may be prescribed and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be used in the course or furtherance of business. Accordingly, availability of input tax credit on demo vehicles is not affected by way of capitalization of such vehicles in the books of account of the authorized dealers, subject to other provisions of the Act. 5.5 However, it is to be mentioned that in case of capitalization of demo vehicles, availability of input tax credit would be subject to provisions of section 16(3) of CGST Act , which provides that where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the Income-tax Act, 1961 , the input tax credit on the said tax component shall not be allowed. It is further mentioned that in case demo vehicle, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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